Gold traded firmly on Thursday and rose to 6-month high, on news that European Central Bank plans for a potentially unlimited bond-buying program, however positive US economic data capped major gains in bullion. On Friday morning gold tumbled as traders took profits and markets settled after the over reactions of yesterday’s session. Spot gold prices increased 0.5 percent

Further positive US economic data of jobless claims also added to the gains in the gold prices. The yellow metal touched a high of $1,695/oz and closed at $1,700.9/oz in yesterday’s session

On Thursday global commodities responded to the announcements of the ECB’s “outright monetary transaction” bond program. Commodities soared as traders moved to more risk assets. This morning The People’s Bank of China (PBOC) moved to tighten short-term liquidity in the market, with analyst speculating the PBOC will ease monetary policy soon Xinhua News reports.

According to the news agency, the PBoC has conducted reverse repurchase agreement operations (REPOs) to remove 52 billion yuan ($AU8 billion) from the market. Commonly used by the PBOC, Chinese REPOs are fixed in seven and 14 day periods, with the central bank agreeing to repurchase the bonds greater than the issuing price. The result was a dip in yields for seven-day reverse repos by five basis points to 3.35 per cent, while yields for 14-day reverse repos remained unchanged at 3.5 per cent.

Gold holdings of SPDR gold trust, the largest ETF backed by the precious metal, increased to 1,293.14 tons, as on Sept 4. Silver holdings of iShares silver trust, the largest ETF backed by the metal, increased to 9,734.23 tons, as on Sept 5. Holdings of gold-backed exchange-traded funds hit a record high of 72.1mn ounces, or 2,044 tons, by Thursday.

The dollar index, which measures the greenback against a basket of six major currencies, fell to 81.089 versus 81.253 in late North American trading on Wednesday. The US dollar fell against the euro on Thursday, pushing the shared currency to its highest level in more than 2-months, after ECB President said; the ECB is prepared to buy an unlimited amount of sovereign bonds.

Mario Draghi informed that the ECB would buy debt in the open market with a maturity between one and three years and that the purchases would be completely sterilized. He also said that there would be no limits on their quantity.

The global economy is in worse shape than it was a few months ago, and there is a risk of a global recession if policy makers on both sides of the Atlantic fail to act, Carlo Padoan, chief economist of the Organization of Economic Cooperation and Development (OECD).

Copper declined, on profit-booking after a 3-day rally, despite supportive news that the ECB will undertake an aggressive bond-buying program to help struggling euro zone countries. LME copper stocks fell for the seventh consecutive session to hit their lowest level since October 2008.

Crude oil prices closed higher but well off the day’s peaks, supported by a drop in US crude oil inventories, strong jobs data and the ECB’s announcement of a bond buying program.

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